Crude-by-rail growth should continue: analyst
MONTREAL — Volatility in energy prices is expected to be a “wild card” for Canadian railways in the long term, but crude-by-rail volumes should continue to grow, albeit more slowly, in 2015, an industry analyst said Tuesday.
“Crude-by-rail momentum will be sustained by infrastructure investments and contractual commitments in the near-term, however, longerterm prospects are less certain if WTI stays at current levels,” Walter Spracklin of RBC Capital Markets wrote in a report.
The price of West Texas Intermediate crude oil, the U.S. benchmark, fell Tuesday to $48.96 US a barrel, the fourth consecutive day of declines and the lowest level since April 2009.
The shipment of crude oil by rail has grown quickly in recent years amid growing concerns about rail safety.
Canadian National Railway and Canadian Pacific Railway posted double-digit growth in petroleum products in 2014. That was a bright spot on the year for CP, whose total volumes fell 0.6 per cent on decreases in six of 10 commodity groups because of contract losses and lower coal traffic.
CN Rail led the North American industry last year, with total carloads increasing 8.2 per cent for the 52 weeks ending Dec. 27, according to data from the Association of American Railroads.
Spracklin expects overall volume growth will slow for most North American railways aside from CP.
He estimates the Calgary-based railway’s revenue ton miles — a key measure determining profit based on revenue to transport one ton of goods for one mile — will grow 5.1 per cent in 2015, up from 3.8 per cent in 2014. The outlook assumes a pickup in intermodal growth and slower crude traffic than previously implied by CP.
Spracklin expects CN’s revenue ton miles will grow 4.4 per cent, down from about 11 per cent in 2014.
Congestion hurt the North American rail network last year as all railways posted slower train speeds and more time in terminals because of unanticipated volume growth, capacity constraints and a stormy winter in the first quarter.
Analyst Fadi Chamoun of BMO Capital Markets has said he anticipates CN will generate 14 per cent compounded annual earnings per share growth over the next five years.